Nvidia and Intel Stocks Drop After Taiwan Semi’s Profit Fall

TSMC makes the main processors inside Apple (ticker: AAPL) iPhones, Qualcomm (QCOM) mobile chipsets, and processors made by Advanced Micro Devices (AMD).

“Our second quarter business was impacted by the overall global economic conditions, which dampened the end market demand, and led to customers’ ongoing inventory adjustment,” said Chief Financial Officer Wendell Huang in a statement.

While TSMC is expected to eventually gain from the growth in AI chips, being a key supplier to Nvidia (NVDA), the market is still currently too small to offset weaker demand for smartphones and PCs. TSMC’s revenue from smartphones dropped 9% from the previous quarter. 

American depositary receipts of TSMC were down 3.3% in premarket trading on Thursday, having risen 38% this year as of Wednesday’s close. Its chief U.S. rival

Intel

(INTC) fell 1.9%. Nvidia fell 1.1%.

TMSC said its second-quarter profit came to 181.80 billion Taiwanese dollars ($5.84 billion), down from 237.03 billion Taiwanese dollars for the same period in 2022. Revenue fell 10% to 480.84 billion Taiwanese dollars. Revenue in U.S. dollars was $15.68 billion, down 14% from the same period last year. 

“Moving into [the] third quarter 2023, we expect our business to be supported by the strong ramp of our 3-nanometer technologies, partially offset by customers’ continued inventory adjustment,” Huang said. 

TSMC said it expects third-quarter revenue between $16.7 billion and $17.5 billion and an operating profit margin between 38% and 40%.

TSMC reiterated its forecast for capital expenditure to be at the lower end of a previously forecast range of $32 billion to $36 billion, as it continues its investment in Arizona. TSMC is facing a challenge in chip manufacturing from Intel, which is hoping its strategy of placing its sites around the globe could attract clients nervous over the future of Taiwan, which China regards as a breakaway province that it intends to unify with the mainland.

Wedbush analyst Matt Bryson said the guidance indicated TSMC is expecting a revenue fall of around 10% for the full year, which was worse than expected. However, TSMC reiterated an extended outlook for 15%-20% annual growth and gross margins of more than 53%.

“Despite the softer near-term outlook (which we view as macro driven rather than specific to TSMC), we remain positive on the stock,” Bryson wrote in a research note on Thursday.

Wedbush reiterated an Outperform rating on TSMC and raised its target price for its shares in Taiwan to 650 Taiwanese dollars from 600 Taiwanese dollars previously. TSMC’s Taiwan-listed shares closed down 0.3% at 579 Taiwanese dollars on Thursday.

Write to Adam Clark at adam.clark@barrons.com